In Leviathan, Thomas Hobbes described his view of life in a state of war. This wasn't necessarily defined as actual hostilities between nations -- just a condition in which peace, and peace of mind, was absent, "and the life of man solitary, poor, nasty, brutish, and short." As investors, I think we can all agree that it feels like there's a war going on out in the markets.
On one side, we've got the superpower financial institutions up on Wall Street telling us that we know nothing, they know everything, and we might as well hand over our money to them for safekeeping -- or suffer the consequences. On another, we've got day-trading insurgents sowing confusion and disinformation on the discussion boards over at Yahoo! To our right, greedy managers at Enron, Adelphia, and WorldCom were creating their own special definition of "fiduciary duty." To our left, federal regulators remained asleep at the switch.
It's not a situation calculated to foster trust, nor encourage careful consideration of the risks and rewards of investing in a given company. On the contrary, it seems tailor-made to keep the individual investor in a constant state of nail-biting terror, feeling alone and under pressure, and if not necessarily in fear of actual death (thank heavens), then at least in fear of financial disaster.
Investors of the world, unite!
And that's what life's like on the safe side of town -- in the best-regulated securities market on earth, right here in the U.S. of A. Cross the border north or south, and especially east or west, and things can get downright scary.
Yet with today's S&P 500 having recorded essentially no gain whatsoever for nearly a decade -- flat against where it was back in May 1999 -- many individual investors are headed overseas. Everywhere you look (except for here), markets are trading higher today than they were seven years ago. The outperformance varies from relatively small (Madrid, Berlin, and Paris are up a few percent) to relatively large (Warsaw's WIG 20 index has doubled) to absolutely phenomenal (Moscow's RTS index is up 14 times over.)
But just as there's no such thing as a free lunch, there's also no such thing as turbocharged returns without additional risk. In Poland, you've got the risk of an uncertain economic environment as the country begins to integrate itself into the European Union. In Russia, you risk having the government summarily disassemble your company and hand it over to Kremlin insiders. Even Western Europe has risks -- ones you may have considered, such as currency rate fluctuations, and ones you may never have thought of, such as the risk that you'll be denied a profit when the government refuses to let your company be bought at a premium by a "foreign" acquirer.
Maximize the returns, minimize the risks
How do you maximize your returns while minimizing your risks? Two possibilities come to mind. The first, as I discussed last year in Invest With an Ally, is to invest abroad, but indirectly. Many of America's largest and most stable companies derive the bulk of their revenues from outside the borders of the United States. For example:
|
Foreign revenues as a % of total rev. |
Trailing P/E before unusual items |
Projected long-term growth |
Dividend yield | |
|---|---|---|---|---|
|
3M (NYSE:MMM) |
54% |
18 |
10% |
2.4% |
|
Hewlett-Packard (NYSE:HPQ) |
59% |
36 |
12% |
1% |
|
Coca-Cola (NYSE:KO) |
68% |
21 |
8% |
2.9% |
|
IBM (NYSE:IBM) |
60% |
17 |
10% |
1% |
|
ExxonMobil (NYSE:XOM) |
70% |
11 |
6% |
2.1% |
|
Qualcomm (NASDAQ:QCOM) |
77% |
37 |
20% |
1% |
|
Texas Instruments (NYSE:TXN) |
77% |
22 |
20% |
0.4% |
When you buy these firms' shares, you know that your investments are subject to the most shareholder-friendly securities regulations on the planet. At the same time, you get tremendous exposure to the profits available in emerging, European, and Asian markets. And by piggybacking on these companies' expertise, you don't need to be an expert on the countries where they operate.
Come ride with us
Of course, if you're ready to ride on the wild side yourself, it just so happens that the Fool has a new report coming out this week. In The Motley Fool International Stock Report: Around the World in 80 Minutes, 12 of the Fool's brightest minds (plus yours truly) recommend our top picks from the world of international investing. These are the same Fools who brought you such unimaginatively titled -- but unimaginably successful -- reports as Stocks 2002, Stocks 2003, Stocks 2004, Stocks 2005, and Stocks 2006.
If we can produce these kinds of returns in the flatlined U.S. equities markets, just imagine the possibilities when we open the doors to investing in the faster-growing markets beyond our borders.
Click here for more information about The Motley Fool International Stock Report.
Fool contributor Rich Smith does not own any of the companies named above. 3M and Coca-Cola are Motley Fool Inside Value recommendations. The Motley Fool has a disclosure policy that would make Wall Street blush.
